4 Trades to Profit from the Unpredictable Swings of Earnings

Sidestep volatility, make options gains on these 4 big names

Trade #2 — Netflix

You’ll note on the CAT trade that we used strike prices that were $5 apart ($100, $105, $110). In Netflix (NASDAQ:NFLX), you may want to stick with that $5 spacing.

But if you’re looking for a bigger move, which I am in NFLX, you can also consider spacing out the strikes by $10. ($10 takes on more risk but may yield a bigger reward.)

Here is the more-conservative way to play this trade:

Selling 10 $90-strike call for Jan. 27 expiration

Buying 20 $95-strike calls for Jan. 27 expiration

Selling 10 $100-strike calls for Jan. 27 expiration

Or you can try it this way:

Selling 10 $85-strike call for Jan. 27 expiration

Buying 20 $95-strike calls for Jan. 27 expiration

Selling 10 $105-strike calls for Jan. 27 expiration

Trade #3 — Amazon

I will be doing the same on Amazon.com (NASDAQ:AMZN), but I need to wait until the new weekly options come out on Thursday, Jan. 26 in order to structure a position that I can hold over earnings that will be reported on Jan. 31 after the closing bell.

Here’s what this trade entails:

Selling 10 $10 in-the-money strike call for Feb. 3 expiration

Buying 20 at-the-money strike calls for Feb. 3 expiration

Selling 10 $10 out-of-the-money strike calls for Feb. 3 expiration

As of this writing, the $185 strike is the at-the-money option. So that’s the “body” of your butterfly, and you would buy 20 of those. Then that means you’d also sell 10 of the $175 calls and sell 10 of the $195 calls. (Be sure to adjust the strikes to fit the stock price when you enter the trade.)

Trade #4 — Baidu

What you did with the Amazon trade, you can also do with Baidu (NASDAQ:BIDU), which is reporting earnings on Jan. 30 after the close.

Here’s the setup:

Selling 10 $10 in-the-money strike calls for Feb. 3 expiration

Buying 20 at-the-money strike calls for Feb. 3 expiration

Selling 10 $10 out-of-the-money strike calls for Feb. 3 expiration

With the $120 strike currently the one that’s at-the-money, you’d buy 20 of those and then sell 10 of the $110 calls and sell 10 of the $130 calls to make the butterfly take flight.

I would also consider shrinking the spacing between the strikes down to $5 on BIDU. The reward may be a little less, but your risk also decreases along with it.